Big money in Islamic banking

Kuwait Finance House (KFH) and its partners are on the brink of creating the world's largest Islamic bank, though it may have to overcome some opposition before it can propel the deal to fruition.

In mid-January, KFH announced that it and its as yet unnamed partners were tabling a bid worth $618.5m for Utama Banking Group of Malaysia's 32.8% stake in Rashid Hussain Bhd, parent of Malaysia's fourth-largest lender, RHB Capital. The offer also included a provision to clear all of RHB's debts, estimated at more than $1bn.

Gaining control of RHB Capital would give KFH a significant presence in the Asian region, with the Malaysian firm having more than 200 outlets in its home country, Singapore, Indonesia, Thailand, Philippines and Brunei.

KFH already has a foothold in the Malaysian market, having started operating there in February 2006, opening Malaysia's first foreign Islamic bank, KFH Malaysia Bhd, which has two branches - one in Kuala Lumpur and another in Shah Alam. However, the launch of KFHMB was seen by analysts as a testing of the regional waters by its Kuwaiti parent, a theory borne out by KFH's latest moves.

In early February, soon after announcing its bid, KFH issued a statement saying it wanted to create the world's largest, most innovative and respectable Islamic bank with extensive networks across the world. KFH announced on February 5 that the consortium it leads could pump more than $3.4bn into RHB Capital.

The initial deal with KFH saw Utama put an end to talks with the Hong-Kong-based Primus Pacific Partners, which has the Qatar Investment Authority and the Kuwait Investment Authority as major stakeholders.

However, on February 7, a potential spanner was thrown into the hitherto smooth-running works of the takeover bid by Malaysia's seventh largest bank, EON Capital Bhd, which announced a counter offer for Utama's stake in RHB Capital. EON Capital's bid was slightly above that of KFH on a per share basis but did not come with the additional icing of clearing the bank's debts or the promise of further massive investment.

EON Capital also floated an offer for shares in Rashid Hussain Bhd itself, a move seen as a blocking manoeuvre to KFH's bid. One of the prime attractions of EON Capital's efforts to gain control of RHB, for Malaysian stakeholders at least, is that it would keep the bank in local hands, though this could be outweighed by the lure of future expansion and going global.

Even while the markets were mulling the news of EON Capital's counter offer, KFH issued a statement saying it had been given the exclusive rights to negotiate further with Utama after the board of the Malaysian bank announced it was severing talks with all other bidders.

"We are delighted and honoured that the board of the Utama Banking Group has unanimously chosen the KFH-led consortium for the bid," the statement said. "We are confident that KFH will be an increasingly important conduit for not only foreign direct investments but also a two-way vehicle for trade into Malaysia, especially from Gulf Co-operation Council countries."

According to the managing director of KFH's Malaysia division, K. Salman Younis, the only effect of EON Capital's counter offer will be a possible slowing down of the sale of RHB Capital to KFH.

"It is too early to say what EON Capital's strategy is, but we have a corporate advisory mandate and exclusivity to negotiate further with the Utama Banking Group, and we will proceed with our plans," Younis said in a recent interview published in the local media.

EON Capital has little time to get RHD Capital and Rashid Hussain Bhd shareholders on board as Utama has said it will finalise the details of the sale to KFH by February 16 at the latest.

KFH, established in 1977, has the credentials to back up its plans to create the world's largest Islamic bank. Voted the best Islamic bank for 2006 in a poll conducted by Islamic Finance News, and with its Malaysian subsidiary taking the prize for the best new Islamic bank in Malaysia, KFH posted a 40% increase in profits for last year. Of the total profits of $1.19bn, $610.06m went to investors and depositors and the remainder stayed with the bank as net gain.

Already one of the world's most profitable Islamic banks, KFH is well on its way to being the biggest was well.

(C) Oxford Business Group - www.oxfordbusinessgroup.com

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM